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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
In re:
NNN 123 NORTH WACKER, LLC, et al.,
Debtors.

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Chapter 11
Case No. 13-39210 (JBS)
(Jointly Administered)

REPLY BY NOTEHOLDER IN SUPPORT OF RSA MOTION

Wells Fargo Bank, N.A., as Trustee for the registered holders of GE Commercial
Mortgage Corporation, Commercial Mortgage Pass-Through Certificates, Series 2005-C4 acting
by and through C-III Asset Management LLC, a Delaware limited liability company, as
successor to Midland Loan Services Inc., in its capacity as special servicer for the 123 North
Wacker Whole Loan, pursuant to that certain Pooling and Servicing Agreement dated December
1, 2005 (the Noteholder), hereby files this reply (the Reply) in support of Debtors Motion
for Order Approving Debtors Entry Into (A) Post-Petition Restructuring Support Agreement,
(B) Consent and Participation Agreement With Co-Owners of the Property, and (C) Certain
Related Relief [Dkt No. 104] (the RSA Motion) 1 and respectfully states as follows:
REPLY
1.

As described more fully in the RSA Motion, the Debtors have sought approval of

a Restructuring Support Agreement (the RSA) that was negotiated aggressively, extensively
and at arms length by and among the Debtors, the Noteholder and the other parties thereto. The
terms of the RSA (which, except for the limited provisions that are effective upon its approval,
1

Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to
them in the RSA Motion or the Debtors Omnibus Reply in Support of the RSA Motion (the
Debtors Reply), as the context requires.

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will be memorialized in a plan of reorganization and effectuated through a sale of the Property)
reflect significant concessions by the Noteholder, which holds the fulcrum security in these cases
and whose consent is integral to a restructuring of the Property. Without the Noteholders
agreement to modify the Loan, reorganization and restructuring of the Property would likely be
impossible. Instead, the Debtors, the other TICs and all other stakeholders would be forced to
expend unnecessary resources on litigation that could nonetheless result in the Propertys
liquidation, the loss of the TICs tax deferral on taxable gains and other related losses. The RSA
prevents this free-fall scenario that would inevitably result if the Debtors and the other TICs
were forced to attempt to restructure the Property without their primary creditor on board.
2.

The Objectors Objections to terms of the RSA ranging from contentions that

the Debtors must be forced to comply with ipso facto clauses contained in the TIC Agreement to
arguing that the Court should examine the terms of the RSA through a lens other than the
Debtors business judgment are without merit and should be overruled for the reasons stated
more fully in the Debtors Reply. The Noteholder joins the arguments made in the Debtors
Reply with respect to the terms of the RSA and sees no need to repeat them at length here.
3.

As to the argument that the RSA Motion should be denied because of the claim

that the Debtors were not authorized to file the bankruptcy cases to begin with, the Noteholder
has no reason to question the Debtors analysis of the issue, but believes that it is of more
moment to observe that the issue is nothing more than a red herring the appropriate manner to
put the matter at issue would be to file and proceed with a motion to dismiss the bankruptcy case.
There is no such motion pending and, as the Debtors Reply reiterates, the motion to dismiss
filed by the Non-Debtor TICs has been dismissed voluntarily by them. Pending the entry of a
court order dismissing the case on such ground, the presumption is that the case, particularly for

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a debtor that is insolvent, has been properly authorized. See, e.g., In re Storay, 364 B.R. 194,
196 (Bankr. D.S.C. 2006) (referencing general presumption that a signed petition indicates that
the party filing the petition had the authority to do so).
4.

The Noteholder also files this Reply to underscore the circumstances here both

as to the prism pursuant to which the sole issue with respect to the RSA Motion, whether it
should be approved as an appropriate exercise of the Debtors business judgment, should be
evaluated, and the legal consequences that flow from those circumstances, particularly as to the
Noteholder.
It is undisputed that:

The fair market value of the Property is less than the debt owed to the Noteholder.

The Property needs a significant infusion of new capital in order to stabilize the
value of the Property, including through new leasing efforts.

Competent and acceptable management of the Property, including of leasing

activity, is critical to any hope for preserving, stabilizing and enhancing the fair
market value of the Property.

And the legal consequences implicated by these undisputed circumstances should also be beyond
dispute.
5.

First, and as pointed out in the Debtors Reply, TIC 0s insolvency expands the

scope of the Debtors fiduciary duties to include the interests of its creditor constituencies. The
Noteholder submits that, as the only constituency in the money, the primacy of its interests in
the formulation of any plan of reorganization not only is warranted, but, if anything, is mandated.
6.

Second, and as also pointed out in the Debtors Reply, the likelihood that the

Debtors could get a plan of reorganization confirmed over the Noteholders objection based on

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these facts is remote in the extreme, and the Noteholder believes that, especially in light of
governing case law, it would be impossible. See, e.g., Bank of America Nat. Trust and Sav. Ass'n
v. 203 North LaSalle Street Partnership, 526 U.S. 434 (1999) (holding that plans allowing for
recoveries by junior interest holders, over objection of senior interest holders, free from
competition and without benefit of market valuation, fall within prohibition of absolute priority
rule); see also RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065 (2012)
(holding that secured creditors may not be precluded from credit bidding their claim in an
auction for the debtors assets). Indeed, the notion that out-of-the-money equity holders and an
indirect equity holder (whose entire investment in the holding company Debtor consisted of
$25,000) could derail the Debtors pursuit with the fulcrum securityholder of a consensual plan
of reorganization, which nonetheless includes benefits and concessions in favor of such objecting
parties, on the grounds that the Debtors did not appropriately take into account their fiduciary
duties or otherwise appropriately exercise their business judgment would stand the absolute
priority rule, as well as the provisions of Section 363 of the Bankruptcy Code, on their head.
7.

Third, on a general level, the Noteholder is under no obligation to agree to a

modification (or especially the assumption) of its loan in connection with the sale of the
Property. See, e.g., Illinois State Scholarship Commission v. Harrison, 384 N.E.2d 947 (Ill. App.
1978) (holding that lender cannot be forced to accept less than what it is owed under governing
loan agreements). Thus, the Noteholder cannot be compelled to permit the modification and
assumption of its loan in connection with a sale to any other party. Among other things, the
provisions of the RSA relating to the identity of the capital provider, the amount of the provided
capital, and the identity of the property manager, critical in any loan modification and
assumption, are even more so here given the insolvency of the Debtors and the undisputed need

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for a significant capital infusion. The Noteholder has negotiated extensively for these and the
other provisions of the RSA, which are now acceptable to it. As such, the terms of the RSA
relating to such a modification and assumption provide a benefit to the estates not otherwise
readily available.
8.

Fourth, and as noted at the February 28, 2014 hearing and as accurately quoted in

the Debtors Reply, the Noteholder engaged in similar negotiations with the Non-Debtor TICs,
rejected proposals even more favorable than the term sheet filed by the Non-Debtor TICs with
the Court, and categorically is unwilling to proceed on the basis of such term sheet (or, for that
matter, any of its other prior proposals), whether with the Non-Debtor TICs or otherwise.
Moreover, even a cursory review of the RSA in comparison to such term sheet can only lead to
the conclusion that the proposal set forth in such term sheet is inferior to the treatment that would
be provided under the plan of reorganization contemplated by the RSA not only to the
Noteholder, but to all other constituencies in the case as well. Accordingly, there is a real benefit
to the estates of having the Noteholder committed to the provisions of the RSA and, just as
important, no benefit at all of having the Noteholder free to engage in discussions over term
sheets and proposals that categorically are unacceptable to it.
9.

Fifth, on the contrary, there is significant potential detriment to the estates if the

RSA Motion is denied and the Noteholder is free to consider pursuing other alternatives in the
case. It could instead, for instance, elect to pursue a modification of the automatic stay so as to
foreclose on the Debtors interests in the Property and institute simultaneous foreclosure
proceedings with respect to the Non-Debtors TICs interest in the Property the very risk to
which the Non-Debtors TICs complain that commencement of the bankruptcy cases has
subjected them. Alternatively, the Noteholder could elect to credit bid its claim in any sale of the

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Property by the Debtors in any Section 363 or foreclosure sale of the Property. Under each of
these alternate scenarios, both the Debtors and the other TICs would not have any remaining
interest in the Property and could suffer additional pecuniary loss. The negotiated transaction
memorialized in the RSA represents the best opportunity for the various constituencies in these
chapter 11 cases to restructure, recapitalize and reorganize in a manner that provides the
possibility of an upside for all stakeholders.
10.

With respect to the restructuring fee, a $750,000 fee constitutes approximately

one half of one percent of the principal amount of the Loan owed to the Noteholder and is
justifiable, and in fact may even be less than typically assessed, in connection with a loan
modification of this size and type. Additionally, as the Debtors Reply notes, the fee is just one
part of an integrated set of mutual consideration and concessions set forth in the RSA.
Furthermore, the fee is payable by the Approved Purchaser only in the event the Approved
Purchaser is the ultimate purchaser of the Property. One of the Objectors objects to this limited
fee on the grounds that it must be satisfied before any other parties receive any return on their
interests. See Thomas Objection, p. 17, n.3. However, absent an agreement among the parties,
including the Noteholder, there is significant likelihood that the Debtors will be unable to
reorganize and restructure. In such a scenario, there would in any case be no value left for any
parties other than the Noteholder.
11.

With respect to the release provided to the Noteholder in the RSA, such a release

is similarly reasonable and warranted under the circumstances. In the TIC Objection, the NonDebtor TICs allege that the release is improper because it does not indicate whether it purports
to release claims held by the TIC Members against the Lenders and because it is not mutual.
See TIC Objection, p. 5. First, as noted in the form of the release attached to the RSA Motion,

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the release includes only Releasing Parties which definition does not include any Objecting
TIC Members. Consequently, this objection is without merit. Secondly, the suggestion that the
Initial Release should be mutual is nonsensical given that the transaction contemplated by the
RSA is founded on the modification of the Loan. Were the release mutual, the Noteholder would
effectively be required to release its rights against the borrower under the Loan Documents,
thus effectively eviscerating its claims. This is antithetical to the purpose of the contemplated
transaction. Third, and again as the Debtors Reply notes, neither of the Objectors can identify
any real or even potential claim of any value against the Noteholder that would be lost from the
Noteholders receipt of such a release. On the other hand, the Noteholders ability to be free
from the time and expense of dealing with even potentially frivolous claims is typically an
important and necessary component in return for the concessions to be made by a secured lender
under these types of circumstances, and that is the case here.

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For these reasons, and for the reasons more fully described in the Debtors Reply and
incorporated herein, the Court should overrule the Objections and approve the RSA Motion.
Dated: March 24, 2014
Chicago, Illinois
/s/ Thomas S. Kiriakos
Thomas S. Kiriakos, Esq.
Aaron Gavant, Esq.
Mayer Brown LLP
71 South Wacker Drive
Chicago, Illinois 60606
Tel: (312) 782-0600
Fax: (312) 701-7711
-andW. Michael Bond, Esq. (pro hac vice application pending)
Elisa R. Lemmer, Esq. (pro hac vice application pending)
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York
Tel: (212) 310-8000
Fax: (212) 310-8007
Attorneys for Wells Fargo Bank, N.A., as Trustee,
for the registered holders of GE Commercial
Mortgage Corporation, Commercial Mortgage
Pass-Through Certificates, Series 2005-C4 acting
by and through C-III Asset Management LLC, a
Delaware limited liability company, as successor to
Midland Loan Services Inc., in its capacity as
special servicer for the 123 North Wacker Whole
Loan, pursuant to that certain Pooling and
Servicing Agreement dated December 1, 2005

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CERTIFICATE OF SERVICE
I, Aaron Gavant, an attorney, hereby certify that on March 24, 2014 I caused the
foregoing REPLY BY NOTEHOLDER IN SUPPORT OF RSA MOTION to be filed
electronically. Notice of this filing will be sent by operation of the Courts electronic filing
system to all the parties indicated on the electronic filing receipt. Parties may access this filing
through the Courts system.
By: /s/ Aaron Gavant

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